• USD/CAD trims some of its daily losses, despite BoC ending QE.
  • USD/CAD plunged 130 pips once the central bank released its monetary policy decision.
  • Bank of Canada will begin the “reinvesting phase,” meaning a replacement of maturing bonds for new ones.
  • Bank of Canada: If inflation is stickier than expected, the bank will act to bring it down.

The USD/CAD slumps for the first time in the week, down 0.25%, trading at 1.2358 during the New York session at the time of writing.  Earlier 30-minutes into the New York stock market session, the Bank of Canada (BoC) released its monetary policy statement announcing the ending of its weekly pandemic bond-purchasing program. 

Furthermore, the BoC decided to keep interest rates unchanged. However, investors’ expectation towards the QE was a reduction in its weekly purchases from CAD 2 billion to CAD 1 billion. Instead, the central bank decided to halt its stimulus, as the threatening of stickier inflation clouds the economic growth.

The USD/CAD pair reaction to the BoC decision

Before the announcement, the pair was trading at 1.2430 but plummeted on the announcement 130 pips, touching the daily low at 1.2300.

BoC Governor Tiff Macklem: We will consider raising rates sooner than we had previously thought

One hour after the release of the Statement, BoC Governor Tiff Macklem held a press conference. He said that despite the bank’s decision to finalize the QE program, significant stimulus to the economy would remain in the palace. 

The end of QE comes as increasing vaccination rates are enabling continued progress in the economic recovery in Canada and around the world”, said the BoC in the opening statement.

Additionally,  the central bank announced that it would end the QE program, but it will begin the “reinvesting phase.” The BoC will purchase bonds only to replace those maturing, meaning that the overall holdings remain stable over time. 

Further, Macklem added that he believes there are good reasons for inflation to ease in 2022 but warned that if they see signs of prolonged inflation, they will take action to curb elevated price pressures.

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